• In general, there are four types of foreign direct investment (FDI):

– The first type of FDI is participation in the capital increase of a domestic company (including foreign-invested companies) or the acquisition of new shares by establishing a new corporate entity (individual or joint venture).
– The second type of foreign direct investment involves the acquisition of existing shares, that is, when foreigners acquire the shares of domestic or foreign-invested companies possessed by domestic shareholders.
– The third type takes the form of long-term loans, which means that the parent company in the home country extends long-term loans to the foreign-invested company with a maturity of more than five years.- The fourth type includes the acquisition of shares through M&A, which means:

• Acquiring shares through free capital increase of foreign-invested companies;
• Acquiring shares through the continued existence or new corporate identity of the merged company;
• Acquiring shares of a foreign-invested company through purchase, inheritance, capital increase or donation from a foreign investor;
• Acquiring shares through dividends from prior investments;
• Transformation, acquisition or exchange of convertible bonds, exchangeable bonds and depository receipts.

Since a paper company is an entity established under foreign law, it falls under Art. 2, paragraph 1 of FIPA and is not restricted. 

• Cash (direct import of the foreign currency or transmission of foreign currency through a foreign exchange bank and converted into national currency);
• Capital goods (including used capital goods) and raw material needed for the initial test operation;
• Income generated from stocks or equity acquired in line with the regulations stipulated in FIPA (dividends);•Industrial property rights, intellectual property rights and other equivalent rights dealing with technology and its use;
• Remaining assets generated from the liquidation of the domestic branch or liaison office of the foreign investor;
• Repayment of long-term loans with maturity of five years or longer, pursuant to FIPA, to foreign-invested companies by their overseas parent companies and to companies affiliated with the overseas parent companies concerned;
• Stocks or equity of a company acquired pursuant to FIPA and the Foreign Exchange Transactions Act or capital gained from the disposition of real estate;
• Stocks of foreign companies listed on a foreign stock exchange market and stocks owned by foreign nationals pursuant to the Foreign Exchange Transactions Act or FIPA;
• Real estate in Korea owned by foreign nationals

• According to the Korea Standard Industrial Classification (KSIC), there are a total of 1,121 sectors, of which 63 sectors are FDI-restricted businesses such as in public administration, diplomatic affairs and national defense. A total of 1,058 sectors are open to FDI, of which 1,056 sectors are partially or fully open to foreign investment. This is a 99.8% liberalization rate for foreign investment, on a level comparable to that of developed member countries of the OECD.

– Fully open: 1,030 sectors;
– Partially open: 26 sectors (foreign investment is possible if certain criteria are met);
– Closed: Two sectors (radio and broadcasting as of June 2004). 

• The amount of foreign investment shall be at least KRW 100 million per case

– If two or more foreign investors are involved, the minimum investment amount shall be KRW 100 million for each individual.

• In principle, the FDI ratio shall be at least 10%, meaning that a foreign investor shall acquire 10% or more of the stocks of a company. However, in the following cases, an FDI ratio of less than 10% is accepted as foreign direct investment:

1. An agreement where the dispatch or appointment of executives is allowed.
2. An agreement of supply or purchase of raw material or goods for more than one year.
3. An agreement introducing or providing technology, joint research or development projects. 

♦ General benefits:

– Guaranteed overseas remittance

• Remittance is guaranteed for dividends and capital from the sale of shares and equity owned by the foreign investor depending on the contents of the permission or report at the time of the said remittance.

– Equal treatment with Korean nationals

• Foreign investors and foreign companies shall be treated equally in terms of business activities except for certain cases stipulated otherwise by law.

Foreign investors may enjoy more favorable treatment in terms of tax reductions and company or factory site locations.

• If the import of capital goods is notified at and confirmed by the Bank of Korea or any of KOTRA’s offices, it will be recognized as import approval pursuant to the Foreign Trade Law.

– Facilitated administrative procedures for investment in kind

• For FDI in kind, foreign investors need to apply for confirmation on completion of FDI in kind after customs clearance by the Korea Customs Service. This confirmation shall be regarded as a written report of investigation by the investigator pursuant to Art. 203 of the Non-Contentious Case Litigation Procedure to facilitate the administrative process.

♦ Tax incentives

-Tax incentives are provided, if the foreign company or investor meets the requirements to receive tax incentives as stipulated in the regulations for “tax reduction and exemption for foreign investments” in FIPA. Businesses eligible for tax incentives have to be in the hi-tech or industry-supporting service business in order to receive a reduction or exemption from national or local tax for a specified period of time.

♦ Lease of national and local government properties

-Land, factories and other properties owned by the state or local governments (hereafter ‘land’) can be used by, leased or sold to foreign-invested companies (even if the business is not subject to tax incentives).
If national properties are leased to foreign investors or companies, then it is possible to reduce the rent.

Exemption from Customs Duty

-Capital goods used directly for businesses, which are eligible for tax incentives and are notified by acquiring newly-issued stocks are subject to customs exemption:

• 1. Capital goods received from foreign investors that are used as a means for domestic or foreign payment.•Capital goods that are imported by the foreign investor as a means of investment.

• According to Article 2 of the Foreign Investment Promotion Act (FIPA), a foreigner is defined as ?an individual of foreign nationality, a corporation established in accordance with a foreign law or an international economic cooperation organization.?
• According to Article 3 of the Enforcement Decree of FIPA, an ?individual who is a permanent resident of a foreign country? refers to a Korean national who has acquired permanent residence, or sojourn permission that can be substituted for permanent residence of the country in which he or she resides. In such cases, that individual is also considered a foreigner.
• Accordingly, a Korean-born individual with permanent foreign residence can be acknowledged as a foreign investor in Korea. 

• A foreign investor refers to a foreign national owning shares or equity in accordance with FIPA regulations.
• A foreign national is defined in FIPA as follows:

– An individual of a foreign nationality (including Korean nationals holding permanent
residence of a foreign country);

* However, overseas Chinese with an F2 visa residing in Korea are not considered to be foreign investors.

– A corporation established in accordance with a foreign law;
– An international economic cooperative organization dealing with investment matters
such as the IBRD, IFC, and ADB.

• Foreign direct investment or FDI is investment of foreign assets into capital goods, domestic structures, equipment, and organizations. FDI refers to an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. It does not include foreign investment into the stock markets. Foreign direct investment (FDI) has the objective of creating long-term profit through participation in company management. It is thus different from securities or portfolio investments that aim at short-term profits without getting involved in the daily business management. The Foreign Investment PromotioForeign investment as defined in the FIPA refers only to foreign direct investment, and foreign investment can thus take place through the following n Act of 1998 (hereafter FIPA) is the basic law covering matters related to FDI in Korea.

• Foreign investment as defined in the FIPA refers only to foreign direct investment, and foreign investment can thus take place through the following

– Acquisition of shares or equity of a domestic company whereby the foreigner owns at
least 10% of the shares or equity of a Korean corporation, or invests for the purpose of
substantially participating in the management of a Korean corporation with the objective
of establishing a continuous economic relationship.
– Even with less than 10% ownership of a company’s shares or equity, it can still be
considered FDI if proof of the following is provided:

• a contract that allows the dispatch or election of executives,
• a contract for raw material purchase or product delivery for a period of at least one year, or
• a contract for a common R&D project or introduction or provision of technology.

– Long-term loans provided by the overseas headquarters or a capital-affiliated company
of the foreign-invested firm are also considered a type of foreign direct investment if the
loan maturity is at least 5 years.

In order to operate a business in Free Trade Zone, for manufacturing, business plan and FDI notification have to be submitted to a person who has the right of management and get an approval to move in, and for the other type of business, a proof document for confirmation, approval, license and registration has to be admitted additionally.

If a foreign investor wants to newly invest, confirmation, approval, license and registration for the business is needed within 6 months from the day of investment notification and the proof document has to be submitted.